Monday's big drop on Wall Street followed by small gains on Tuesday

Investors went hunting for bargains a day after U.S. stocks racked up the biggest losses in more than seven months. The buying helped lift major stock indexes out of the red on Tuesday. Prices of U.S. government bonds fell. The mini-rebound seemed fragile at times, with the market giving up...

Investors went hunting for bargains a day after U.S. stocks racked up the biggest losses in more than seven months.

The buying helped lift major stock indexes out of the red on Tuesday. Prices of U.S. government bonds fell.

The mini-rebound seemed fragile at times, with the market giving up some of its earlier gains by late afternoon.

Markets were coming off a 326-point drop in the Dow Jones industrial average on Monday, and the blue-chip index's worst January performance in five years prompted by disappointing news about U.S. manufacturing.

"It was the biggest hole we've seen for quite a bit, so it's not surprising to see a green day after a couple days of red," said Andres Garcia-Amaya, a global market strategist with J.P. Morgan Funds.

Portfolio managers seized on the aftermath of Monday's sell-off to buy, even as many stock watchers acknowledged that the market could still be in for a correction, or a drop of at least 10 percent.

"The one thing you never know is when the bottom is going to hit in a downturn," said Quincy Krosby, a market strategist with Prudential Financial. "So what you might do is at least begin the process of building your position."

Among the biggest gainers on the day were fashion retailer Michael Kors Holdings, water technology provider Xylem and the owner of Pizza Hut, KFC and Taco Bell restaurant chains.

Trading was relatively light for much of the day, picking up by late afternoon. But most of the active stocks were in the green.

All told, the Dow rose 72.44 points, or 0.5 percent, to close at 15,445.24 Tuesday. The Standard & Poor's 500 index climbed 13.31 points, or 0.8 percent, to 1,755.20. The Nasdaq composite gained 34.56 points, or 0.9 percent, to 4,031.52.

Even with Tuesday's gains, the Dow is down 6.8 percent this year, and the S&P 500 index is off 5 percent .

Investors are trying to gauge the strength of the U.S. economic recovery. They got some positive news on Tuesday, when the Commerce Department reported that orders to U.S. factories fell 1.5 percent in December, as aircraft orders plunged. That's the biggest drop since July, but it was less than anticipated.

On Monday, the Institute for Supply Management said its index of manufacturing activity fell to 51.3 in January, the lowest reading since May. That unnerved investors already worried about signs of a slowdown in the global economy.

Whether Tuesday's market uptick gains momentum or gives way to another sell-off may depend on what the government's latest jobs report says on Friday.

Employers added just 74,000 jobs in December, the fewest in three years and far below the average of 214,000 added in the previous four months. The consensus forecast for January calls for hiring to rebound to 170,000, according to FactSet.

"These numbers are very subject to revisions and it would be comforting for investors to see that (December) number revised upward," said Krosby. "It would console investors that the economy has not lost momentum."

Between now and then, Wall Street will parse company earnings for more clues about the economy's health.

Among companies due to report on Wednesday: Time Warner, Merck, Yelp, Walt Disney and Allstate.

"For the next couple of days, I think the volatility remains," said David Chalupnik, head of equities for Nuveen Asset Management. "I don't know if we've seen the bottom to this pullback or correction."

Yum! Brands jumped $5.90, or 9 percent, to $72.06 after the owner of KFC reported better-than-expected earnings late Monday. It also indicated it remains confident about its earnings growth forecast for the year.

Water technology provider Xylem made a splash, rising $3.47, or 11 percent, to $36.27, after it reported better-than-anticipated results for its fourth quarter.

Microsoft drew a muted response from investors after the tech giant named Satya Nadella as its new CEO. Founder Bill Gates is also stepping down as chairman and will become a technology adviser to the company. The news lowered shares 13 cents, or 0.4 percent, to $36.35.

Nine out of the 10 sectors in the S&P 500 posting gains.

Utilities were the laggard, with Dominion Resources leading the decline. Shares slid $1.27, or 2 percent, to $65.85.

The Dun & Bradstreet Corp posted the biggest decline in the S&P 500. The company shed $10.80, or 10 percent, to $95.58.

Most U.S. homebuilders were trading higher following a report by real estate data firm CoreLogic that showed U.S. home prices climbed 11 percent in December from a year earlier. Home prices slipped from November to December, the third consecutive monthly decline. Builder NVR was tops among the risers, adding $27.02, or 2.4 percent, to $1,164.02.

The yield on the 10-year Treasury note climbed to 2.63 percent from 2.58 percent on Monday as investors sold bonds.

For most of the year, investors have bought bonds amid concern that U.S. growth is slowing after a strong fourth quarter, and because the Federal Reserve had reduced its own purchases of bonds.

The yield remains well below the 2.97 percent it clocked on Dec. 31. That could be good news for homebuyers and companies looking to borrow money.